Community Health Systems to Sell Assets to Pay Down Hefty Debt
May 03 2016 - 12:30PM
Dow Jones News
Shares in Community Health Systems opened sharply lower after
the hospital operator announced another quarter of disappointing
results and its executives vowed to sell assets to pay down the
company's hefty debt.
Franklin, Tenn.-based Community Health reported a 86% drop in
first-quarter profit after markets closed on Monday. Shares were
off more than 10% midmorning.
Community Health posted earnings of $11 million, or 10 cents a
share, down from $79 million, or 68 cents a share a year ago.
Revenue rose slightly to $5 billion from $4.9 billion.
Analysts were expecting earnings of 74 cents share, according to
those surveyed by Thomson Reuters. It was the third straight
quarter that earnings fell short of Wall Street expectations.
The company said it would divest a Nevada hospital joint venture
and sell another 10 hospitals, among other assets, to raise cash.
Combined with the spinoff last week of 38 rural Community Health
Systems hospitals, the announced divestitures would reduce the
system's hospital count by more than one-fifth since the end of
last year.
Most of the $1.2 billion from the spinoff will be used to pay
down debt, the company said. The sale of the four-hospital Nevada
joint venture to Universal Health Services will bring Community
Health Systems another $445 million.
"As we refine our portfolio into what we anticipate will be a
more sustainable, higher-margin group of hospitals, our resources
and future investments can be targeted into markets where we have
the greatest opportunity to achieve performance improvement in our
operations and financial results," Community Health Systems Chief
Executive Officer Wayne Smith said in a news release ahead of a
call with analysts.
Community Health Systems' eagerness to slim down comes roughly
two years after its $7.3 billion acquisition of 71-hospital Health
Management Associates, a deal that created a U.S. hospital giant
with uneven performance and a string of poor quarterly financial
results.
Former Health Management Associates hospitals continued to
deliver losses in the first quarter, including eight hospitals in
Florida and two in Tennessee that reduced earnings before interest,
taxes, depreciation and amortization by a combined $40 million,
according to analysts with Avondale Partners and Susquehanna
Financial Group.
After an $83 million loss in the fourth quarter, Community
Health Systems' management said they struggled to increase patient
volume and turnaround Health Management Associates, which suffered
from management turnover and limited investment in physician
recruitment ahead of the 2014 acquisition. That loss followed
unexpectedly weak earnings in the third quarter that sent Community
Health Systems' shares tumbling last October.
Community Health Systems' reported a drop in admissions of 2.6%
in the first quarter compared with the same period the prior year
and 2% on a same-hospital basis. A measure of volume that combines
admissions and outpatient care, or adjusted admissions, increased
during the quarter by 0.7% and by 1.3% on a same-hospital
basis.
Write to Melanie Evans at melanie.evans@wsj.com
(END) Dow Jones Newswires
May 03, 2016 12:15 ET (16:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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